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Pension and other post-retirement benefits | 12 Months Ended
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Dec. 31, 2021
Retirement Benefits [Abstract] |
Pension and other post-retirement benefits | Pension and other post-employment benefits The Company provides defined contribution pension plans to substantially all of its employees. The Company’s contributions for 2021 were $10,836 (2020 - $9,672). The Company provides a defined benefit cash balance pension plan under which employees are credited with a percentage of base pay plus a prescribed interest rate credit. In conjunction with the utility acquisitions, the Company also assumes defined benefit pension, SERP and OPEB plans for qualifying employees in the related acquired businesses. The legacy plans are non-contributory defined pension plans covering substantially all employees of the acquired businesses. Benefits are based on each employee’s years of service and compensation. The Company permanently freezes the accrual of benefits for participants in legacy plans. Thereafter, employees accrue benefits under the Company’s cash balance plan. The OPEB plans provide health care and life insurance coverage to eligible retired employees. Eligibility is based on age and length of service requirements and, in most cases, retirees must cover a portion of the cost of their coverage. 10.Pension and other post-employment benefits (continued) (a)Net pension and OPEB obligation The following table sets forth the projected benefit obligations, fair value of plan assets, and funded status of the Company’s plans as of December 31:
| Pension benefits |  | OPEB
| 2021 |  | 2020 |  | 2021 |  | 2020
Change in projected benefit obligation |  |  |  |  |  |  |
Projected benefit obligation, beginning of year | $ | 834,913 |  |  | $ | 564,970 |  |  | $ | 306,524 |  |  | $ | 219,217 |
Projected benefit obligation assumed from business combination | — |  |  | 195,231 |  |  | — |  |  | 44,950 |
Plan Settlements | (1,294) |  |  | — |  |  | — |  |  | — |
Service cost | 14,673 |  |  | 15,450 |  |  | 7,307 |  |  | 6,175 |
Interest cost | 20,676 |  |  | 19,281 |  |  | 8,048 |  |  | 7,695 |
Actuarial loss (gain) | (36,597) |  |  | 76,618 |  |  | (18,977) |  |  | 34,507 |
Contributions from retirees | — |  |  | 171 |  |  | 2,040 |  |  | 2,037 |
Plan amendments | 237 |  |  | (191) |  |  | 310 |  |  | — |
Medicare Part D | — |  |  | — |  |  | 373 |  |  | 377 |
Benefits paid | (66,800) |  |  | (37,020) |  |  | (12,979) |  |  | (8,434) |
Foreign exchange | (190) |  |  | 403 |  |  | — |  |  | — |
Projected benefit obligation, end of year | $ | 765,618 |  |  | $ | 834,913 |  |  | $ | 292,646 |  |  | $ | 306,524 |
Change in plan assets |  |  |  |  |  |  |
Fair value of plan assets, beginning of year | 629,157 |  |  | 407,074 |  |  | 176,616 |  |  | 158,873 |
Plan assets acquired in business combination | — |  |  | 179,600 |  |  | — |  |  | — |
Actual return on plan assets | 58,721 |  |  | 52,876 |  |  | 15,200 |  |  | 21,219 |
Employer contributions | 29,058 |  |  | 26,099 |  |  | 11,178 |  |  | 2,583 |
Plan Settlements | (1,294) |  |  | — |  |  | — |  |  | — |
Contributions from retirees | — |  |  | 171 |  |  | 1,988 |  |  | 1,998 |
Medicare Part D subsidy receipts | — |  |  | — |  |  | 372 |  |  | 377 |
Benefits paid | (66,800) |  |  | (37,020) |  |  | (12,979) |  |  | (8,434) |
Foreign exchange | 22 |  |  | 357 |  |  | — |  |  | — |
Fair value of plan assets, end of year | $ | 648,864 |  |  | $ | 629,157 |  |  | $ | 192,375 |  |  | $ | 176,616 |
Unfunded status | $ | (116,754) |  |  | $ | (205,756) |  |  | $ | (100,271) |  |  | $ | (129,908) |
Amounts recognized in the consolidated balance sheets consist of: |  |  |  |  |  |  |
Non-current assets (note 11) | 84 |  |  | 488 |  |  | 11,879 |  |  | 10,174 |
Current liabilities | (1,902) |  |  | (1,989) |  |  | (699) |  |  | (2,835) |
Non-current liabilities | (114,936) |  |  | (204,255) |  |  | (111,451) |  |  | (137,247) |
Net amount recognized | $ | (116,754) |  |  | $ | (205,756) |  |  | $ | (100,271) |  |  | $ | (129,908) |
The accumulated benefit obligation for the pension plans was $1,008,754 and $1,080,685 as of December 31, 2021 and 2020, respectively. 10.Pension and other post-employment benefits (continued) (a)Net pension and OPEB obligation (continued) Information for pension and OPEB plans with an accumulated benefit obligation in excess of plan assets:
| Pension |  | OPEB
| 2021 |  | 2020 |  | 2021 |  | 2020
Accumulated benefit obligation | $ | 489,043 |  |  | $ | 727,981 |  |  | $ | 274,649 |  |  | $ | 288,594 |
Fair value of plan assets | $ | 396,679 |  |  | $ | 578,143 |  |  | $ | 162,592 |  |  | $ | 148,496 |
Information for pension and OPEB plans with a projected benefit obligation in excess of plan assets:
| Pension |  | OPEB
| 2021 |  | 2020 |  | 2021 |  | 2020
Projected benefit obligation | $ | 580,841 |  |  | $ | 833,846 |  |  | $ | 274,649 |  |  | $ | 288,594 |
Fair value of plan assets | $ | 452,333 |  |  | $ | 627,601 |  |  | $ | 162,592 |  |  | $ | 148,496 |
(b)Pension and post-employment actuarial changes
Change in AOCI (before tax) | Pension |  | OPEB |
| Actuarial losses (gains) |  | Past service gains |  | Actuarial losses (gains) |  | Past service gains |
Balance, January 1, 2020 | $ | 38,510 |  |  | $ | (6,180) |  |  | $ | (9,146) |  |  | $ | — |  |
Additions to AOCI | 50,026 |  |  | (191) |  |  | 22,036 |  |  | — |  |
Amortization in current period | (5,430) |  |  | 1,609 |  |  | (509) |  |  | — |  |
Reclassification to regulatory accounts | (25,875) |  |  | (544) |  |  | (16,680) |  |  | — |  |
Balance, December 31, 2020 | $ | 57,231 |  |  | $ | (5,306) |  |  | $ | (4,299) |  |  | $ | — |  |
Additions to AOCI | (59,754) |  |  | 237 |  |  | (24,126) |  |  | 24 |  |
Amortization in current period | (13,130) |  |  | 1,626 |  |  | (2,021) |  |  | 310 |  |
Amortization pursuant to plan settlements | (210) |  |  | — |  |  | — |  |  | — |  |
Reclassification to regulatory accounts | 31,670 |  |  | (752) |  |  | 14,816 |  |  | — |  |
Balance, December 31, 2021 | $ | 15,807 |  |  | $ | (4,195) |  |  | $ | (15,630) |  |  | $ | 334 |  |
The movements in AOCI for Empire Electric and Gas Systems' and St. Lawrence Gas System's pension and OPEB plans are reclassified to regulatory accounts since it is probable the unfunded amount of these plans will be afforded rate recovery (note 7(c)). 10.Pension and other post-employment benefits (continued) (c)Assumptions Weighted average assumptions used to determine net benefit obligation for 2021 and 2020 were as follows:
| Pension benefits |  | OPEB
| 2021 |  | 2020 |  | 2021 |  | 2020
Discount rate | 2.94 | % |  | 2.49 | % |  | 2.92 | % |  | 2.58 | %
Interest crediting rate (for cash balance plans) | 4.00 | % |  | 4.15 | % |  | N/A |  | N/A
Rate of compensation increase | 4.00 | % |  | 4.00 | % |  | N/A |  | N/A
Health care cost trend rate |  |  |  |  |  |  |
Before age 65 |  |  |  |  | 5.875 | % |  | 6.00 | %
Age 65 and after |  |  |  |  | 5.875 | % |  | 6.00 | %
Assumed ultimate medical inflation rate |  |  |  |  | 4.75 | % |  | 4.75 | %
Year in which ultimate rate is reached |  |  |  |  | 2031 |  | 2031
The mortality assumption for December 31, 2021 uses the Pri-2012 mortality table and the projected generationally scale MP-2021, adjusted to reflect the ultimate improvement rates in the 2021 Social Security Administration intermediate assumptions for plans in the United States. The mortality assumption for the Bermuda plan as of December 31, 2021 uses the 2014 Canadian Pensioners' Mortality Table combined with mortality improvement scale CPM-B. In selecting an assumed discount rate, the Company uses a modeling process that involves selecting a portfolio of high-quality corporate debt issuances (AA- or better) whose cash flows (via coupons or maturities) match the timing and amount of the Company’s expected future benefit payments. The Company considers the results of this modeling process, as well as overall rates of return on high-quality corporate bonds and changes in such rates over time, to determine its assumed discount rate. The rate of return assumptions are based on projected long-term market returns for the various asset classes in which the plans are invested, weighted by the target asset allocations. Weighted average assumptions used to determine net benefit cost for 2021 and 2020 were as follows:
| Pension benefits |  | OPEB
| 2021 |  | 2020 |  | 2021 |  | 2020
Discount rate | 2.49 | % |  | 3.19 | % |  | 2.58 | % |  | 3.29 | %
Expected return on assets | 6.20 | % |  | 6.85 | % |  | 4.79 | % |  | 5.57 | %
Rate of compensation increase | 3.99 | % |  | 3.96 | % |  | n/a |  | n/a
Health care cost trend rate |  |  |  |  |  |  |
Before Age 65 |  |  |  |  | 5.122 | % |  | 6.125 | %
Age 65 and after |  |  |  |  | 5.122 | % |  | 6.125 | %
Assumed ultimate medical inflation rate |  |  |  |  | 4.05 | % |  | 4.75 | %
Year in which ultimate rate is reached |  |  |  |  | 2031 |  | 2031
10.Pension and other post-employment benefits (continued) (d)Benefit costs The following table lists the components of net benefit cost for the pension and OPEB plans. Service cost is recorded as part of operating expenses and non-service costs are recorded as part of other net losses in the consolidated statements of operations. The employee benefit costs related to businesses acquired are recorded in the consolidated statements of operations from the date of acquisition.
| Pension benefits |  | OPEB
| 2021 |  | 2020 |  | 2021 |  | 2020
Service cost | $ | 14,673 |  |  | $ | 15,450 |  |  | $ | 7,307 |  |  | $ | 6,175 |
Non-service costs |  |  |  |  |  |  |
Interest cost | 20,676 |  |  | 19,281 |  |  | 8,048 |  |  | 7,695 |
Expected return on plan assets | (35,972) |  |  | (26,285) |  |  | (10,052) |  |  | (8,748) |
Amortization of net actuarial loss | 13,126 |  |  | 5,430 |  |  | 2,021 |  |  | 509 |
Amortization of prior service credits | (1,626) |  |  | (1,609) |  |  | 11 |  |  | — |
Settlement Loss Recognized | 198 |  |  | — |  |  | — |  |  | — |
Amortization of regulatory accounts | 19,665 |  |  | 16,272 |  |  | 218 |  |  | 1,527 |
| $ | 16,067 |  |  | $ | 13,089 |  |  | $ | 246 |  |  | $ | 983 |
Net benefit cost | $ | 30,740 |  |  | $ | 28,539 |  |  | $ | 7,553 |  |  | $ | 7,158 |
(e)Plan assets The Company’s investment strategy for its pension and post-employment plan assets is to maintain a diversified portfolio of assets with the primary goal of meeting long-term cash requirements as they become due. The Company’s target asset allocation is as follows:
Asset class |  | Target (%) |  | Range (%)
Equity securities |  | 48 | % |  | 30% -100%
Debt securities |  | 43 | % |  | 20% - 60%
Other |  | 9 | % |  | 0% - 20%
|  | 100 | % |  |
The fair values of investments as of December 31, 2021, by asset category, are as follows:
Asset class |  |  |  | 2021 |  | Percentage
Equity securities |  |  |  | $ | 429,147 |  |  | 51 | %
Debt securities |  |  |  | 350,834 |  |  | 42 | %
Other |  |  |  | 61,259 |  |  | 7 | %
|  |  |  | $ | 841,240 |  |  | 100 | %
As of December 31, 2021, the plan assets do not include any material investments in AQN. 10.Pension and other post-employment benefits (continued) (e)Plan assets (continued) All investments as of December 31, 2021 were valued using level 1 inputs except for 17,314 of institutional private equity investments using level 3 fair value measurement. These private equity funds invest in the private equity secondary market and in the credit markets. These funds are not traded in the open market, and are valued based on the underlying securities within the funds. The underlying securities are valued at fair value by the fund managers by using securities exchange quotations, pricing services, obtaining broker-dealer quotations, reflecting valuations provided in the most recent financial reports, or at a good faith estimate using fair market value principles. The following table summarizes the changes fair value of these level 3 assets as of December 31:
|  |  |  | Level 3
Balance, January 1, 2021 |  |  |  | $ | 7,745 |
Contributions into funds |  |  |  | 6,233 |
Unrealized gains |  |  |  | 4,257 |
Distributions |  |  |  | (921) |
Balance, December 31, 2021 |  |  |  | $ | 17,314 |
(f)Cash flows The Company expects to contribute $21,305 to its pension plans and $12,208 to its post-employment benefit plans in 2021. The expected benefit payments over the next ten years are as follows:
| 2022 |  | 2023 |  | 2024 |  | 2025 |  | 2026 |  | 2027-2031
Pension plan | $ | 47,802 |  |  | $ | 43,760 |  |  | $ | 44,478 |  |  | $ | 46,318 |  |  | $ | 47,554 |  |  | $ | 238,011 |
OPEB | 10,465 |  |  | 11,064 |  |  | 11,646 |  |  | 12,060 |  |  | 12,543 |  |  | 68,454 |

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